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The Unease of Doing Business with DMRC – IMPRI Impact and Policy Research Institute

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The Unease of Doing Business with DMRC - IMPRI Impact and Policy Research Institute

T K Arun

Yet, a company owned by GoI and the government of Delhi, the Delhi Metro Rail Corporation (DMRC), is crushing EODB under the wheels of its growing fleet of world-class trains, in the most spectacular fashion possible

If god has a competitor, even in a limited capacity, it is the Government of India. GoI combines in itself the trinity of creator, preserver and destroyer when it comes to ease of doing business (EODB).

Time was when only finance ministry correspondents covering the World Bank came across this unwieldy EODB, thanks to a now-discredited annual bank ranking of countries on the ease of doing business. Not even businessmen growing multiple ulcers as they struggled through the jungle of compliance to launch and run their businesses knew their disease had a name. Nowadays, civil servants are as familiar with EODB as they are with DA and HRA, thanks to GoI’s high-decibel commitment to fostering entrepreneurship.

Yet, a company owned by GoI and the government of Delhi, the Delhi Metro Rail Corporation (DMRC), is crushing EODB under the wheels of its growing fleet of world-class trains, in the most spectacular fashion possible: boldly defying the Supreme Court and its order to pay compensation to a former business associate, as determined by an arbitrator. And this crushing of EODB is taking place in the full glare of global scrutiny.

Both the Airport Metro line and Delhi Metro involve a large number of multinational players originating from countries ranging from Japan, South Korea and Spain to France. When a government-owned entity disrespects an arbitration award for nearly five years, it makes India’s aspiration, publicly aired at the highest level, to become the arbitration hub of the world look like a sour joke. Especially when the imprimatur of the highest court of the land seems to make no difference to DMRC’s contempt for the arbitration award.

DMRC’s conduct does further damage. One, it accumulates interest at the rate of SBI’s prime lending rate plus 2%, so that when it eventually makes the payment, it would bear a huge interest burden. Further, by refusing to pay up, DMRC penalises the beneficiary of the award and its lending banks, both of whom accumulate non-performing assets (NPAs).

The arbitration award was issued in May 2017, asking DMRC to pay Delhi Airport Metro Express Pvt Ltd (DAMEPL) ₹4,663 crores. DAMEPL is a subsidiary of Reliance Infrastructure Ltd, an Anil Ambani company facing insolvency proceedings for outstanding loans that are smaller than the amount it could claim back from DAMEPL once it receives its compensation. Reliance Infra had funded DAMEPL with both equity and debt, including to absorb the operating losses in the initial years of running the Airport Metro line.

The circumstance leading to the arbitration is itself a poor advertisement for India’s commitment to excellence in either business or engineering. The Airport line of the Metro was to be built as a public-private partnership (PPP) between state-owned DMRC and a private concessionaire. DAMEPL got chosen. DMRC was to build the infrastructure and the concessionaire was to run the trains. The line runs both underground and overground. The overground track rests on huge viaducts with tall pillars. Building these was the DMRC’s responsibility.

The project missed its Commonwealth Games deadline of 2010 and commenced in 2011. By mid-2012, the concessionaire noticed undue vibrations on some portion of the line and asked DMRC to rectify the construction errors leading to the vibrations. DAMEPL started running the trains slowly. DMRC carried out some repairs, which did not satisfy DAMEPL.

Some girders had developed cracks and got twisted. DMRC’s repairs contained the damage but did not eliminate them. It wanted the concessionaire to operate with these minor flaws, as they did not compromise safety.

But the concessionaire determined that the flaws would reduce the life of the project and it would have to carry out costly repair and replacement during the concession period. In the absence of effective rectification of engineering defects that DMRC was responsible for, it filed for termination of the concession in October 2012, seeking the return of its equity and debt with interest, as per their contract. Within 15 days, DMRC initiated the arbitration.

The three members of the arbitration panel were chosen as follows: one member nominated by each side, and the third chosen by these two nominees. On July 1, 2013, DMRC took over the Airport line, lowered fares, allowed its prepaid cards to work on the Airport line and increased ridership. The line has been running well since then.

The arbitration concluded in May 2017, finding the termination demand fully justified and awarding DAMEPL compensation with interest. DMRC challenged it in the Delhi High Court, which rejected its plea. It appealed to a division bench of the court, which partly upheld its plea. DAMEPL approached the Supreme Court, which upheld the award in September 2021. Instead of complying with the order, DMRC lawyered up, filed a review petition and lost.

Once the Supreme Court upholds an award, it does not lead to automatic execution. The winner has to move to the high court for execution of the award. This opened up a fresh opportunity for legal foot-dragging. Legal delays continue.
If a state-owned company can defy the Supreme Court for 18 months on some pretext or the other, in the process bankrupting another company, and if the government reportedly plans to legally bar the attachment of Metro assets, where does the government really stand on ease of doing business in this country?

This article was first published in The Economic Times as Uneasy Business Commute on March 29, 2023.

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